Rent to Rent is Immoral
‘Rent to rent’ sometimes known as rent2rent is the latest get quick scheme dreamt up by the property ‘fast buck’ merchants.
What is Rent to Rent?
Well, ostensibly it involves predator like behaviour from opportunist tenants, who rent a property that they then let out as an HMO, letting out the individual rooms separately. This tenant then makes a profit by drawing in a larger rent from the multiple tenants than the rent they are paying out to their unsuspecting landlord.
Opportunists or vultures?
The ‘rent to rent’ exponents claim that their behaviour is entirely legal and is purely exploiting an opportunity presented by lazy landlords who have failed to see the opportunity of multiple lets in their property to maximise their rental returns.
As a landlord who has both let properties on a room by room basis and now chooses to let the entire rental property; I can tell you that this is rubbish! Firstly, any landlord knows that if they have a large house and fill it with a load of professional tenants or students renting separate rooms then they will generate more rental revenue. However, experienced landlords also know that the hassle factor of having half a dozen footloose tenants renting a large house instead of one family is much greater. The turnover of the individual tenants is likely to be much higher. This generates higher advertising and marketing costs for a landlord.
But the main thing is that a house of six is going to result in a much greater ‘wear and tear ‘on the rental property and its interior, resulting in a more intensive refurbishment and repair regime. On top of this there will be greater demands on toilets, showers, kitchens, which could possibly require a significant amount of capital expenditure to make the buildings suitable for multiple occupation. This is not withstanding the fact that the fire safety requirements for a HMO are far greater than for a single let in the same property. Not only that, HMOs are subject to a different regulatory regime where the landlord is required to obtain a licence from the Local Authority.
Rent to rent – immoral & illegal?
At the heart of ‘rent to rent’ is how many landlords are actually aware of what their tenants are up to. I suspect very few. Most Assured Shorthold Tenancy Agreements specifically exclude sub-letting without express consent. This includes Property Hawks own Free AST which states in Para 3.10 that:
“ The Tenant hereby agrees with the Landlord as follows:-
3.10 Not to sublet or part with possession of the property.”
Some ‘rent to rent’ ‘experts’ suggest that you can let to high end corporate clients, others are a little bit more down market with their aspirations looking to let property to LHA recipients. Either way they seek to gain control of a landlords’ property often misleading both the landlord and their tenants about the true validity and legality of the situation.
This makes most protagonists of ‘rent to rent’ not only immoral in that they are misleading their landlord, but also illegal, flying in the face of their tenancy agreement.
Is ‘rent to rent’ illegal?
The short answer is probably and almost certainly so. It potentially invalidates the landlord insurance.
An industry expert points out that it is vital that landlord insurance also represents the risk. HMOs are generally not covered on a standard landlord policy which would more than likely lead to any claims being declined. Many insurance companies will also insist on an AST between the landlord and tenants/occupants and the insurance will also specify that there is no subletting. The long and the short of it is anything outside of the “normal” process of letting a property could invalid your insurance, now imagine you have a claim for a fire and your insurance is invalid, maybe that guaranteed rent wasn’t such a good idea.
In addition it is ultimately likely to be against the conditions of a landlord’s buy-to-let mortgage, which means in theory the buy-to-let lender could call in the loan. Resulting in the forced sale of the landlord’s property. The essence of whether ‘rent to rent’ is illegal is whether the agreement between the parties is legal. One legal expert recently commented that the agreements that he had come across varied from 2 to 10 years. Most are poorly drafted and if they are not drafted as a commercial lease then there are real doubts about their legality. Those rent to rent agreement that just grant licences to the subsequent occupants will not be worth the paper they are written on for the tenants.
Landlords safeguarding themselves against ‘rent to rent.’
There are obviously some properties that are more at risk of appealing to these scammers. Larger properties in metropolitan areas are obviously their main target. These houses are ripe for sub-letting on a room by room basis. The best way for a landlord to safeguard against this happening to their rental property is to ensure a regular inspection regime of your rental property. This is always good practice, whatever property you are letting out.
As is usual with these property get rich schemes. The media space very rapidly becomes full of those scammers who are desperate to tell you how they made a fortune, and can now charge you a small fortune to share the benefit of their ‘experience.’ What they never explain clearly is that if they are making such a fortune why are they so keen / desperate to tell the world about their scheme.
I suspect that neither is it as profitable or they are as successful as they try and make out!
Do you have a view on ‘rent to rent’?
Have you been affected by it?
Please post your comments below.